Earning Income Through Online Platforms? What to Know Before Tax Time
Online platforms have made it easier than ever for Australians to earn extra income. From driving for a ride-sharing service or renting out a holiday property to freelancing, renting out equipment or creating digital content, the sharing economy now covers a wide range of activities.
What can sometimes be overlooked is the tax side of the equation. In most cases, income earned through these platforms needs to be included in your tax return.
Unlike salary and wages, sharing economy income may not always be completely pre-filled in your return. This makes it important to keep your own records and check that all income has been reported correctly before lodging.
The ATO is also paying closer attention to the sharing economy. With expanded data-matching and reporting arrangements giving the ATO greater visibility over online transactions, there is an increasing chance that information supplied by platforms will be compared with what taxpayers report in their returns.
What Is Sharing Economy Income?
Sharing economy income can come from many different activities, including:
- Ride-sourcing services such as Uber or DiDi
- Short-term accommodation offered through platforms such as Airbnb or Stayz
- Renting out assets including vehicles, caravans, tools, parking spaces or storage areas
- Freelance and task-based work such as deliveries, cleaning, handyman services or graphic design
- Creating digital content, streaming, selling digital products or receiving tips through online platforms
It doesn’t necessarily matter whether you only do these activities occasionally or earn a relatively small amount. There may still be tax consequences.
Depending on the circumstances, the income may be assessable whether you are operating a business, working as a contractor or simply using an online platform to earn some additional money.
The ATO Is Receiving More Platform Data
Under the Sharing Economy Reporting Regime (SERR), many electronic platform operators are required to report transaction information directly to the ATO. The regime covers a growing range of activities, including ride-sourcing, short-term accommodation and certain personal services.
The ATO can use this information to check the amounts taxpayers report in their tax returns.
If the information reported by a platform doesn’t match your return, the ATO may contact you for further information. Depending on the circumstances, discrepancies could lead to adjustments as well as potential interest or penalties.
Simple Ways to Make Tax Time Easier
If you earn money through an online platform, a little preparation throughout the year can make a big difference when it comes time to lodge your return.
Keep Your Own Records
Many platforms provide annual summaries showing how much you’ve earned, but it’s still worth maintaining your own records.
Keep receipts and details of relevant costs such as platform fees, vehicle expenses, repairs, cleaning costs and equipment purchases. Good records can make it much easier to support deductions you may be entitled to claim.
Know Which Expenses You Can Claim
Expenses directly related to earning your sharing economy income may be deductible.
Exactly what you can claim will depend on the activity you’re undertaking and your individual circumstances. If you’re unsure, it’s worth discussing the expenses with us before claiming them to make sure they are appropriate and properly supported.
Be Prepared for the Tax Bill
One of the biggest differences between employment and sharing economy income is that tax often isn’t withheld before you receive the money.
That can leave you with a larger-than-expected tax bill when your return is lodged.
Depending on your circumstances, it may make sense to put aside a portion of each payment in a separate account, make voluntary tax payments during the year or, where appropriate, enter the PAYG instalment system.
Remember Your Other Obligations
Income tax isn’t necessarily the only consideration.
GST registration may be required where your activities reach the relevant turnover threshold. If you provide ride-sourcing services, you will generally need to register for GST regardless of how much income you earn from those activities.
Depending on your circumstances, you may also want to consider making additional superannuation contributions, which could provide longer-term financial benefits.
Think Beyond Your Tax Return
Taking a more business-like approach to sharing economy activities can be useful even if you’re only earning additional income on the side.
Keeping accurate records and planning ahead for tax can give you a clearer picture of whether the activity is actually profitable, make cash flow easier to manage and potentially help if you need to access finance as the activity grows.
If you’ve earned money through an online platform during the year, now is a good time to check your records before lodging your tax return. Speaking with your accountant can also help you identify deductions you may be entitled to claim, make sure your income is being reported correctly and reduce the risk of unexpected issues at tax time.
The sharing economy can be a useful way to generate additional income. With good records and some forward planning, the tax side of these activities can become a much more manageable part of the process.
For more information, visit the ATO’s guidance on sharing economy income and tax or speak with the team at Bates Cosgrave about how the rules apply to your circumstances.